直覺電腦 (INTU) 2013 Q2 法說會逐字稿

Good afternoon.

My name is Sayed, and I will be your conference facilitator.

At this time, I would like to welcome everyone to Intuit's Second Quarter Fiscal 2013 Conference Call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer period.

(Operator Instructions)

With that, I will now turn the call over to Matt Rhodes, Intuit's Director of Investor Relations.

Thank you Sayed.

Good afternoon, and welcome to Intuit's Second Quarter 2013 Conference Call.

I'm here with Brad Smith, our President and CEO, Neil Williams, our CFO, and Scott Cook, our Founder.

Before we start, I'd like to remind everyone that our remarks will include forward-looking statements.

There are a number of factors that could cause Intuit's results to differ materially from our expectations.

You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10K for fiscal 2012, and our other SEC filings.

All of those documents are available on the Investor Relations page of Intuit's website at intuit.com.

We assume no obligation to update any forward-looking statements.

Some of the numbers in this report are presented on a non-GAAP basis.

We've reconciled the comparable GAAP and non-GAAP numbers in today's press release.

Unless otherwise noted, all growth rates refer to the current period versus the comparable prior-year period, and the business metrics and associated growth rates refer to worldwide business metrics.

A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends.

And with that, I'll turn the call over to Brad Smith.

Okay.

Thank you Matt, and thanks to all of you for joining us today.

Today, we reported second-quarter revenue of $968 million, down 3% from last year, and in line with the release that we issued on February 7th.

As you know, this year's late tax legislation causes an apples to oranges comparison.

Adjusting for the estimated shift in tax revenue, we believe second-quarter revenue growth would have been approximately 10%.

As we foreshadowed back in September, we expected a shift in tax revenue this season between our second and third quarter results.

The impact in January was greater than we had anticipated.

But the early season results we've seen in February give us confidence we're on track for the season and for the full fiscal year.

Quarterly shifts aside, we know more than 140 million people will need to file taxes by April 15th.

We've got a strong game plan to help tax filers keep more of their hard earned money, and receive expert tax advice when they need it.

I'll talk more about our plan to win this tax season in a minute.

But first, let me step back and talk more broadly about a secular theme that continued to drive growth across all of our businesses, the adoption of cloud-based services.

Our connected services strategy is picking up steam.

45 million of our 60 million customers are now using at least one of our hosted solutions, and the adoption of these connected services continued in the second quarter.

With QuickBooks online subscribers growing 28%, Demandforce subscribers growing 57%, Intuit online payroll subscribers growing 19%, and our payment customers growing 14%.

Our mobile offerings are the new catalyst that is starting to fuel this growth.

Intuit financial services nearly doubled the number of mobile banking customers versus last year.

GoPayment customers have also nearly doubled year-over-year, and our newest Snap Payroll product is already enabling thousands of small businesses to calculate their payroll completely on their mobile phones.

Now these are just a few examples of the more than 50 applications that work across various mobile platforms and devices.

Collectively, this shift to digital solutions continues to enrich our financial results with recurring revenue streams and favorable lifetime value economics.

This shift to digital is also the driving force behind our Tax business.

The five-year compounded annual growth rate for the tax software category is 7%, while tax stores and pros have experienced compounded growth of negative 1% and 1% respectively over the same time period.

The software category is taking share, and TurboTax is the definitive category leader.

We expect this shift in consumer preference towards digital, do-it-yourself tax software to continue for years to come, and we are in the sweet spot to capitalize on this shift.

So what about this tax season?

Well, let me take a few minutes to sort through the noise and put what we're seeing this far this tax season into perspective.

The late changes to the tax code which were signed into law on January 2nd, created a situation where the vast majority of tax filers were not able to have their returns accepted by the IRS until January 30th.

This is two weeks later than last year, and it's about a week later that we had anticipated.

The remaining returns will start being accepted in late February or early March.

Our original guidance had assumed that select forms would be delayed, a situation similar to what we saw two years ago.

But this additional delay has pushed the early season filing peak even further into our third fiscal quarter.

With that context, our units declined 7% through February 16th, versus the comparable prior-year period.

However, units grew 29% during the period from January 30th through February 16th, indicating that filing activity has definitely picked up since the late IRS open.

The IRS has also indicated that they are down 22% season-to-date in the receipt of individual returns, which puts our performance year-to-date into clearer perspective.

So I suspect the question on everyone's mind is who is winning?

To answer this question, let me point you to some third-party data that we're monitoring early in the season, which tells us that we are we are out of the gates on strong footing despite the industry-wide late start.

At retail, NPD data shows the category down about 12 points versus last year, with TurboTax gaining 200 basis points of share.

While desktop only represents about 25% of our units, it's important that we continue to take share in this segment of the business.

In the online tax category, early data from third parties like Comscore, Hitwise, and Google show that the season got off to a slow start online, as well.

But we are maintaining our strong leadership position.

Now there's a lot of games yet too be played, but we took our lessons learned from last year and we sharpened our game plan heading into this season.

Our marketing is more clear and targeted to hard-working Americans who need the best solution to keep more of their hard earned money.

Our research shows that at least 40 million tax filers are paying too much for assisted tax prep for a relatively simple return, and they are willing to try software.

We see these tax filers as our future customers.

TurboTax offers the best technology and expert advice at a fraction of the cost of a tax store.

Our strategy to win these 40 million filers includes delivering a more personalized and a faster tax experience.

For instance, this year we've built unique experiences for military customers and for digital natives.

As I mentioned earlier, mobile is playing a bigger role, with 80% of simple of filers now able to complete their returns on their smartphone with SnapTax.

This has more than doubled last season's reach.

And for those with more complicated tax situations, we've made it easy to transfer their information from SnapTax to the cloud so they can finish their return using TurboTax online.

And all TurboTax customers have access to free tax advice from highly qualified and certified tax professionals.

We're making it clear to customers that we're in their corner helping them maximize their refunds, and easily navigate their tax experience end to end until their refund is in the bank.

So is our plan working?

Well once again, let's look to the marketplace to answer the question.

In the Apple app store, SnapTax has over 8,000 ratings and five stars, while the competition's mobile app has just over 200 ratings and 3.5 stars.

In Google Play for Android, SnapTax has more than 17,500 ratings, and 4.7 stars, versus the competition at just over 300 ratings and 3 stars.

And PC Magazine made TurboTax its Editor's Choice once again, a distinction we have held for more than 10 years running.

So it 's going to be a backend loaded tax season.

It's going to be full of intrigue and drama.

But the long-term trends that are driving customer acquisition of financial growth across Intuit persists.

We'll continue to give you updates along the way during the tax season, including our next update in mid-March and one at the end of April.

And on that note I'm going to turn it over to Neil to walk you through the financial details.

Thanks Brad.

Let's get started with overall Company results.

For the second quarter of fiscal 2013, we delivered revenue of $968 million down 3%.

As we said in our release earlier this month, we saw a larger than expected tax revenue and operating income shift from the second quarter to the third quarter due to IRS delays.

We estimate revenue growth in the second quarter, adjusted for tax delays would have been approximately 10% reflecting a shift of approximately $140 million.

We also delivered non-GAAP operating income of $153 million, compared to non-GAAP operating income of $251 million in the second quarter of fiscal 2012.

Excluding the estimated shift in tax revenue, non-GAAP operating income growth would have been approximately 11%.

GAAP operating income was $93 million.

Excluding the estimated shift, GAAP operating income growth would've been approximately 12%.

Non-GAAP earnings-per-share was $0.33, compared to non-GAAP earnings-per-share of $0.52 in the second quarter of fiscal 2012.

The R&D tax credit added about $0.01 to non-GAAP EPS in the second quarter.

And our GAAP earnings-per-share were $0.23, the R&D tax credit added $0.04 to GAAP EPS in the second quarter, as we are required to recognize the entire 2012 catch-up benefit this quarter.

Turning to the business segments, total small business group revenue grew 16% in the second quarter, 11% excluding Demandforce.

Total unique small business customers grew 1%.

We continued to see double-digit growth in connective services customers and declines in desktop customers.

Within small business, financial management solutions revenue grew 17% for the quarter, 6% excluding Demandforce.

Customer acquisition in our connected services businesses continues to grab our growth in this segment, as Brad covered earlier.

This transition has definite implications on our traditional Desktop business.

As you know, QuickBooks new user growth is shifting from a single desktop purchase toward a recurring connective subscription.

We've also made changes to our discounting practices, which we expect will shift more QuickBooks desktop unit sales into the second half of this fiscal year.

Desktop QuickBooks units were down about 18% in the US in the second quarter, and desktop revenue declined 8%.

For the full-year, we expect desktop units to decline roughly 5%, with desktop revenue down 1%.

Combining our active QuickBooks subscriber base with QuickBooks desktop units sold, we expect customers to grow mid single digits for the year, with QuickBooks revenue up about 10%.

Our employee management solutions revenue grew 13% for the quarter driven by improved mix.

Total customers grew 2%, with online payroll customers growing 19%.

Payment solutions revenue grew 18% in the second quarter.

Merchants grew 14% versus last year driven by customer acquisition and our mobile solution GoPayment.

Card transaction volume grew 10%, and adjustments in rates and fees made up the balance of the revenue growth.

Consumer tax revenue totaled $215 million, down 27% versus last year, reflecting the estimated shift of around $140 million in revenue to our third fiscal quarter.

As Brad mentioned, acquiring more of the assisted filers who are willing to try software is the key to our future growth.

And our investment plans reflect this multi-year initiative to significantly increase the number of customers we serve.

Accounting professionals revenue of $123 million declined 7%, The year over year decline in the second quarter was expected, and is included in our guidance of 5% to 8% for the full fiscal year.

Financial services revenue of $93 million was up 1%.

Adjusting for the sale of our Corporate Banking business and the addition of Mint, financial services revenue grew approximately 6%.

As a reminder, the Corporate Banking business generated about $30 million in revenue on an annual basis.

In the second quarter of fiscal 2012, it generated $9 million.

Other businesses revenue totaled $67 million, declining 10%.

Other business revenue declined 3% adjusted for the transfer of Mint from this category to financial services.

Within other businesses, global small business revenue increased 16%.

Turning to the balance sheet, our financial principles and capital allocation strategy have not changed.

We target double-digit organic revenue growth, while growing revenue faster than expenses.

We also take a disciplined approach to capital management, and when it's in the best use of cash, we'll return cash to shareholders via share repurchases.

We've repurchased $100 million of shares in the second quarter, with $1.5 billion remaining on our authorization.

In addition, our Board approved a $0.17 dividend for the fiscal third quarter, up 13% from last year payable on April 18, 2013.

Turning to our guidance, we are reiterating our fiscal year 2013 guidance for revenue and operating income, and increasing our EPS guidance.

For fiscal year 2013, we expect revenue of $4.55 billion to $4.65 billion.

Non-GAAP operating income of $1.57 billion to $1.60 billion.

GAAP operating income of $1.315 billion to $1.345 billion Non-GAAP diluted EPS of $3.40 to $3.46.

And GAAP diluted EPS of $2.96 to $3.02.

The Fiscal Cliff Bill included a retroactive extension of the R&D tax credit through December 31, 2013.

We now expect our fiscal 2013 non-GAAP tax rate to be about 33%.

We increased our EPS guidance to reflect the benefit to non-GAAP and GAAP EPS.

We've also increased our GAAP EPS guidance to reflect the gain on the sale of our Intuit websites.

For the third quarter of fiscal 2013, we expect revenue of $2.215 billion to $2.275 billion for growth of 15% to 18%.

Non-GAAP operating income of $1.35 billion to $1.375 billion, growth of 17% to 19%.

GAAP operating income of $1.29 billion to $1.315 billion, for growth of 16% to 18%.

Non-GAAP diluted EPS of $2.99 to $3.04, for growth of 19% to 21%.

And GAAP diluted EPS of $2.83 to $2.88, for growth of 17% to 19%.

And with that, I'll turn it back to Brad.

All right, thank you Neil.

We've put a lot of energy into explaining this tax season, given all of the moving parts this year.

At the risk of being redundant, I'll reinforce that we like our position and our game plan, and early indications suggest that we are performing well.

Our small business results remained strong, especially considering the macro environment.

We have momentum in all of our core businesses, and across the Company we're benefiting from the secular tail winds towards more digital connected services.

We have market-leading SaaS, and increasingly mobile solutions to capitalize on these tail winds and they're generating predictable recurring revenue streams.

So, we're not going to get distracted by quarterly shifts.

We have a proven strategy that is delivering in the short-term, while building the foundation for long-term growth, and increasing shareholder value.

I want to close by congratulating our employees for once again having Intuit named as one of Fortune Magazine's Top 100 Best Places to Work for the twelfth year in a row, and being listed in the top 25 for the second year in row.

It is their dedication to creating an environment of customer driven innovation that generates the financial result that you've come to expect from us.

So with that Sayed, I'll turn it over to you to open it up for any questions.

(Operator Instructions)

Adam Holt from Morgan Stanley.

Thanks for the detail on the tax season, that's very helpful.

I'm going to start with a couple questions there.

It sounds like $140 million roughly moved from one quarter to the next related to the IRS.

Do you have a sense for what the unit shift might have been, and is it possible at all to give us pro forma numbers to what you think the season might be year-to-date, adjusting for the shifts around the IRS?

Let me try my best to parse through what we do know right now.

What we do know is that this year we've seen a pretty significant industry-wide slowdown based upon all the third-party data in terms of the slow start, and then we've seen a pickup in the pace of filings since January 30 when the IRS began accepting and processing returns.

So in terms of trying to translate that into unit revenue, what we can tell you is this, that we have right now seen an increase of roughly 29% in the last two weeks.

And that unit volume continues to process at that kind of rate.

So what I would tell you is while the starting line has definitely moved up a little bit later, the finish line hasn't moved at all.

And there's going to be 140 million people filing returns between now and April 15.

In terms of how that unit breaks down, it's going to be very hard for me to give you any sort of a calculation or prediction as we sit here right now.

In terms of pro forma, I'm sorry Adam, the second question on pro forma, just a little more around what you were looking for there?

I was just trying to see if you could cap -- if you had any sense for what you think the impact has been thus far through the season beyond just through the end of January?

Neil, do you have a perspective on that?

The only thing I can offer is that we're certainly not increasing our prices, and we haven't seen a lot of that across the industry.

And we're not projecting anything significant in terms of mix benefit.

So I think if you applied similar ASP to last year to what we're seeing move, you could back into the number of units that would be as good an estimate as we could provide.

And that actually walks me into my other question, which is as you look at this season be more backend loaded, does that change at all the way you think about the mix between pricing and units for the rest of the season?

And does it change at all how your marketing plans as you started the season as to now you're taking a snapshot and maybe adjusting them real time?

Thanks very much.

First of all, in terms of the shift in mix, we think that the tax filers who were going to have a more simple return a more complex return won't be impacted by whether they're starting a little bit later than usual.

So I think the mix is going to play out pretty much the we had anticipated.

In terms of our marketing campaign, we had a game plan to be aggressive throughout the season, and we've begun that early in the season to help people navigate through the uncertainty of what they can do as the IRS was getting in gear.

And so ultimately, I would tell you that we feel like we have a pretty solid plan for the balance of year and this doesn't change anything in terms of our marketing approach.

Great, thank you.

Peter Goldmacher, Cowen and Company.

One of the things you guys have talked about a lot is that if you're able to improve your conversion, that has significant revenue upside.

It's probably early enough in the tax season to talk a little bit about how conversion is going.

And I'm wondering Brad, I'm hoping something good is happening there and that's giving you confidence in the rest of the season.

And then my second question is just an update on Demandforce.

How that acquisition is being integrated, the lessons you're learning and how you're feeling about that acquisition?

Great, thank you Peter.

So let me start with conversion.

Our teams continue to be laser-focused on this, improving everything from the shopping experience to the ability to come in and try a product, and then become an active user and keep repeating the use of that product.

We are seeing positive results in terms of conversion.

The tax season, of course, had a little bit of an apples and oranges start, because you had people come in and begin to use the product but they didn't necessarily complete their tax return until they had all the information, or they thought the IRS was ready to accept.

But we're starting to see those conversion metrics moving the direction we had anticipated, and the team continues to run tests every single day and continues to optimize the experience.

Across the board, I would say we're making positive progress around conversion, which is why you hear us reiterating our guidance for the full-year and raising our EPS guidance for the balance of the year as well.

In terms of Demandforce, we are just delighted with how this business continues to perform.

The business is growing north of 50%.

They're adding customers.

You heard the subscriber base was up 57% for the quarter.

The team has worked to integrate Demandforce with the data in QuickBooks, and there are very early stages right now but they're out there marketing to the QuickBooks customer base to introduce them to Demandforce.

And we're doing the same thing with our accountants who have an appointment-based practice.

And so it's early days in terms of the ability to begin to cross-sell, but the team already has experiments in place.

We've already got the data integrated, and across the board that Demandforce business continues to perform extremely well.

So that's how we feel about that acquisition at this point.

Okay great, thanks Brad.

Brent Thill from UBS.

Brad, if you could just touch base on the online side of the tax business.

What you're seeing from a competitive landscape, maybe just contrast this year versus what you saw last year, and anything new you're seeing in terms of the dynamics there?

Yes, I'd be happy to do that Brent.

First of all, tax in the online space is playing out pretty much the way has the last several years.

Everyone is being very aggressive with an introductory product that is free.

You see a lot of search engine words or SCO SCM for search engine optimization and search engine marketing happening.

A lot of banner adds.

And basically it's an aggressive fight for every tax filer.

And so there isn't any increased competitiveness that we've noticed so far.

What we have noticed is the opportunity for us to continue to get sharper on our conversion side, because we get 70 million people out of the 140 million tax filers that visit TurboTax.com every year.

That's one half of the nation.

Our ability to capture their attention, get them using our products and convert them into a filer gives us a real opportunity to grow market share.

In terms of the competitive landscape, it's just as dog eat dog as it's ever been.

But our ability to get smarter and wiser about how we capture more share, continues to get better every day.

I'm feeling good about our game plan.

Okay.

And real quick for Neil, you're quickly approaching your 35% operating margin target that you set, and you've done a great job as obviously on the operating margin improvement.

Can you just give us a sense of how you're thinking about the next stage?

Or should we just think about this stage for now?

Brent, I don't recall ever saying 35% was necessarily our goal or our target.

What we've said is that we hope to add at least 50 to 100 basis points of margin expansion each year as we grow our revenue faster than our expenses.

That might not always be the case.

But I'll tell you at this point in the cycle, we still think there's plenty of opportunity.

The shift to connective services brings us higher gross margins.

There's lots of opportunity as we consolidate some of our hosting and some of the technology costs we have.

So, our plan going forward would be to continue to provide a level of margin expansion.

Always though in service to expanding the top line and expanding customers.

So, job one is to always grow our share in the category in every category where we're involved.

But we think there's opportunity at least for the foreseeable future to continue to grow our revenue faster than our expense base.

Thank you.

Sterling Auty from JPMorgan.

In your prepared remarks, you talked about the total filers expected this year.

Can you remind us what it was last year?

And you talked about how many new filers enter the base each year and how you plan to capture them.

And just maybe some color as to what you think that looks like this year?

Last year I think the number reported by the IRS was around 143 million, 144 million filers, and I believe that they expect an average of somewhere between 1% to 2% increase this year.

We're calling it in about the same range.

So somewhere in the mid-140 million, maybe 146 million filers or so is what we're looking for.

(multiple speakers)

Yes.

The second part is I think you've talked about the ones leaving the base tend to be more manual than tax store filers are doing it more digital.

Is that still the case or is there any change to that trend?

What we've looked at is over the last five years, the tax software category has grown 7% compounded annually.

The tax store category has declined 1%, and the tax pros, CPAs and others prepared by a tax professional has grown 1%.

Even when you look at last year and you look at the IRS reported data, the tax software category is still outgrowing all the alternatives five to one.

So there is a secular shift as about 3 million to 5 million new people enter the tax category and they tend to be digital natives who are used to doing everything online or with a mobile device.

You've got an installed group of people who carry smart phones every day, and they use the web to run their personal life.

They do online banking, so they're looking at the alternative of doing taxes themselves.

And that just continues to provide a foundation of secular tailwind for us that allows the category to grow.

So we have seen no change in terms of the shift to digital.

Okay.

And one question on QuickBooks Online.

I think you added 4,000 international users in the quarter.

Can you talk to how you think that traction or I think you also gave some metrics in the past about the number of people downloading or I should say testing it, how should we think about the adoption of the international QuickBooks online customer going forward?

I would say we're still early days but what we now have is we have about 24,000 paying customers in over 79 countries.

And then we have free versions where customers are in the trial period in over 160 countries.

Now we're learning a lot about how to optimize the conversion funnel.

How to more localize the product so that it feels really unique to the individual in that particular country.

And every day isn't a great learning journey, but we love the early results.

They're positive and they're moving in the right direction.

All right.

Thank you.

Gil Luria from Wedbush Securities.

The first one is about the Affordable Care Act.

It sounds like that's going to possibly be administered through the tax system, which could add a very substantial number of filers next year.

So first of all, could it be possible that your business would benefit from the Affordable Care Act, especially since a lot of these folks are going to be the younger crowd?

And what are you doing this year to make sure that you get your -- at least your share of those folks that are coming into the system next year?

I would first put this into context.

This is an education year for everyone around the Affordable Care Act.

So we're taking the steps necessary to make sure that tax filers understand what are the decisions they want to be making and need to be making.

So when this actually comes to fruition in 2014 to have the ability to have the right tax situation set up for them.

And so right now, we are working with our experts inside, and we also have some things in-market that enable the tax filer to know what are the decisions they want to start making now that will set them up in the best position in 2014.

As you just suggested, the Affordable Care Act will be administering both credits as well as potentially penalties through the tax system.

We believe that next year it's going to be very important to be able to work closely with all of the customers in the market to help them make the best decisions that optimize their tax outcome.

Will it bring new filers in?

That's going to be one that we will all have to better understand over time.

If it's anything like the Bush tax rebates in 2008, that moved the number of tax filers from 140 million to about 156 million, as people came in and basically filed to get the rebates.

If that has the same implications, it could potentially grow the tax category, which we think will be good news.

But at this point in time, I think it's still too early to call.

So we're going to continue to work with the experts.

And as you know, we've got a health care business, so between our tax business and our healthcare business, we've got all of the right people on it.

And we'll share more as we learn more.

Great.

And then my second question is about mobile.

You pointed out some of the statistics that show that your share in mobile is an order of magnitude bigger than your share of online or desktop.

How big is mobile in terms of as a phenomena right now in terms of the number of people filing their taxes?

For e-commerce last year was the year where mobile became more than 10% of the category, and if you look at your Google Play downloads of more than 1 million possibly several million you include the equivalent on the iPhone side.

Are we talking about the same order of magnitude of mobile now maybe comprising as much as 10% of the category, and with your much higher share there that being a nice long-term tailwind?

Yes, It's still early days in terms of the transition for the tax category, Gil.

But what we're seeing is 3X the number of downloads and actual tax returns completed and filed on mobile devices this year season-to-date than what we saw last year.

That's pretty significant.

And what we do know is that we've now increased the reach.

Last year, we were able to reach a certain population of people with an easier return.

We can now reach 80% of all those people with a simple return, and they can complete and file right on their smart phone.

And then the other piece I would tell you is just like many of us, some people may begin on a mobile device and want to finish it up on an internet, maybe a web-enabled PC.

So we've enabled the ability to start on the phone and move it back to TurboTax online.

So I think you're going to see mobile play an increasing role in terms of the percent of the mix.

At this point, we haven't broken out what percent of total mix it is.

But I'll tell you it's growing 300%, and it is growing faster than anything else we've got in the portfolio.

Got it.

Thank you very much.

Walter Pritchard from Citigroup.

Brad, I'm just wondering if you could talk about the live tax support?

And last year I think you talked about it as maybe not being happy with how you executed on that.

And just curious if you a few weeks into tax season here, what impact are you seeing of live support have on the tax business overall?

Last year our team did a wonderful job of getting out there and launching and learning.

And we've got some goodness out of it.

We saw increased net promoter scores.

We saw a 37% lift in first-time filers who moved into our product for a large part because we had assisted advice if they needed it.

But we also had some lessons learned in terms of how we structured the support, how easy it was to find it in the product if you needed it.

Our team has taken a huge step forward this year, and I couldn't be more pleased.

We're getting great feedback in terms of accessibility and easy to find the expert if you need them.

We're also seeing an increase in net promoter scores again up between three and five points.

And so while it's early days, we like the results we're seeing, and we like the feedback we're hearing back from customers.

And so we're going to continue forward from this point on.

And then Brad, you guys gave the compared your 29% growth in the last roughly the last two weeks to what the IRS saw, and I think it was a 7% delta in terms of units.

And I'm wondering, is there a reason that we should think about that difference between your growth and the IRS growth either narrowing or widening as it moves throughout the season?

Or is this premium in terms of units to the market?

Are you happy with that?

And should we expect to see that sustained throughout the season?

What you have is you have a few different data points here.

First of all, a 100-day season, every day moves the number quite a bit.

And when we reported through February 16 with that slow start to the season and actually only getting a couple days into our second quarter here in terms of the ability for the IRS to process, our total units were down 7%.

If you take the snapshot of January 30 when they started accepting through February 15, they're up 29%.

When I shared the IRS information that we've heard from the IRS, it's down 22% season-to-date.

But they're seeing the same phenomenon right now.

Since they opened up on January 30, they're starting to make a dent in that year over year delta.

And I think it's just going to be a matter of a couple weeks before they cross the tipping point and start to go into positive territory as well.

And so I tell you, I am very pleased right now with what I'm seeing.

When you actually have a 200 basis point improvement in market share and retail, you've got 40 to 60 times more people rating your mobile apps than the nearest competitor, and you're actually holding share online of actually up maybe about a half a point depending upon which of the data sources you see.

I feel pretty good that our numbers are stacking up versus at least what we can pick up in the industry overall.

But we still got a lot of game left to play.

Great.

Thanks a lot Brad.

Greg Dunham from Goldman Sachs.

That was one of my questions is, is when was the 28% number -- at what date was that given?

And I think you addressed that, but maybe a little clarification there.

And then the follow-up would be, you've done a good job of giving the description of why there was a delay, but can you remind us maybe perhaps the differences between the 2013 season and the 2011 season, and the delays today versus the delays a couple years ago?

The information I shared and the conversations with the IRS I can't give you the specific date.

I can tell you the information came in the last 24 hours, and so when they use a season-to-date figure, you could assume that it's probably pretty fresh.

In terms of what's different, there are some similarities in terms of the fact that Congress was able to -- Congress acted late, which put a lot of pressure in the industry and the IRS to be able to make the coding changes, which put a delay in the season.

The difference this go around was January 30, the ability to start processing tax returns with the IRS impacted pretty much the universe.

And so what you had is you had a large number of people who knew and this time were much more conditioned to saying okay, I remember what happened two years ago, and so we saw a lot more people sit back and wait.

Two years ago, people went ahead and moved forward and processed, and we kept it in the cloud and held it for them until the IRS was ready.

Or they went to a CPA and the CPA held it.

This time, the tax filers seem to be much more attuned to what was happening in Washington, and so they sat back and didn't move.

So we saw a significant impact this time versus what we saw two years ago.

Now I will put it into perspective for you in terms of the impact on revenue.

Two years ago, we saw about 80% of our tax revenue come in the third quarter because of the delayed filing.

Last year, in a more normalized year, it was about 75%.

We expect that this year there's going to be a little bit more than 80%, and so this is not without precedent.

It just happens to be a little more backend loaded than what we saw a couple years ago, and it's primarily because the filers are now watching Washington, and they're sitting back and waiting until the IRS was ready.

That's helpful.

Thanks guys.

Raimo Lenschow from Barclays.

As we all try to dig in and try to understand what your momentum is compared with last year, one of the things that we noticed is that if you look at Comscore is that the site visits that you guys are getting is a lot better and up from last year.

And while HR Block seems to be down, and it seems to be in line with the reviews we're seeing for the different products, that you're doing a really good job making it easier to find expert advice.

Is that the metrics that you would support to look at from our perspective?

Thank you.

Those are the kinds of metrics we're looking at right now.

We're looking at the Comscore site traffic.

We're looking Hitwise.

We're looking at Google, and the Adwords, and how many people were clicking on different brands.

And then in addition to that, we have our own internal data we're looking at.

All of those seem to be indicating similar trends to what you just highlighted there.

Our marketing team is doing a really good job.

I think our marketing message is clearer, and the execution that the team has put out there in the marketplace, I'm very pleased with year-to-date.

Okay.

Thank you.

Scott Schneeberger from Oppenheimer.

Brad, just a little clarification again on the IRS data.

If it's 22% down through a much more -- it looks like a more recent date than what you offered.

Is it actually better?

And I'm just curious, your 2-16, what's the comparable period to last year?

Are you using the same date in '12 as well?

Let me start with the second part first Scott.

So this year through 2-16, the comparable period was through February 18 of last year.

So we're actually looking at the start of season number of filing days, and so it's versus 2-18 last year.

In terms of the IRS data, I go back to the answer a few minutes ago.

I can't tell you the cut off date.

The data that we have is relatively fresh.

It's in the last 24 to 36 hours, and so it's hard for me to tell you that it's the exact same day.

It actually feels a little fresher just based upon the source than our 2-16 cut off.

So I feel pretty good about our 7% decline through February 16, compared to the 22% number that we heard from the IRS.

And you triangulate that with some of the other data we just talked about, like Comscore website traffic and others, and I feel like we're out of the gate strong.

Okay, thanks for clarifying that.

A few more in tax, if I may.

Just your thoughts on that court case with regard to the IRS on the P10 certification, and then a couple more after that please.

Okay in particular Scott, what would like to know about the court case with the IRS and certification?

I know you press releases on it, but just your thoughts on where that goes from here from your Washington contact?

Thanks.

I really don't have a forecast or a perspective on how it's going to end up.

What I do know is that we do fundamentally support and believe that people preparing tax returns should have certification, and should be accredited to do so if they're going to do it on behalf of someone else.

And that's why our free tax advice is only supported by tax attorneys, enrolled agents, and certified professional accountants.

We've been in support of the industry's view there.

In terms of whether or not this court ruling is going to continue to push that forward or end up opening it up for others, we'll have to wait and see.

Thanks.

And if I can sneak in one more for you and one more for Neil.

Any reference to how many debit cards you did last year and how you're faring this year on any comparative basis you care to use?

And then Neil, I'm a little surprised at the level of buybacks year-to-date, and could you please comment on that?

Thanks guys.

Yes honestly, we have not broken out the number of refund cards.

As you know, we changed our approach this year.

We had it in-house last year.

This year we've partnered with NetSpend, and NetSpend is helping us with the program management and administration.

And so while we're getting less revenue, it's actually very profitable for us.

So far we like the volume we're seeing but we haven't broken out the number of cards versus last year.

And I'll hand it over to Neil for the second part of your question.

The level of buybacks each year in each quarter is really the outcome of a number of different factors that we take into consideration.

First and foremost, are alternative uses for capital, business conditions and things of that nature.

Remember last year, we spent a lot of money acquiring Demandforce and redeeming about half of our long-term debt outstanding.

The plan going into this year was to let our cash position build up a bit from where we ended last year, but I can tell you we're evaluating that each quarter.

And as I mentioned, there are things like other business opportunities that may come along that take that into consideration.

So, we guided about $100 million worth of share repurchases per quarter, and we're on track to complete that.

We'll see how the back half of the year plays out.

Thanks for taking all my questions guys.

Kartik Mehta from Northcoast Research.

Brad, I wanted to ask you about the payments business.

It seems as through you're having some really good success on the GoPayment side.

And I'm wondering as you look at that characteristics of the users of GoPayment versus your traditional users, have you seen any differences in terms of the amount of time they're used or average dollar amount?

Yes Kartik, we have.

GoPayment customers that aren't using QuickBooks, so the pure stand-alone, tend to be a much more early stage small business.

They tend to process fewer transactions, and the dollar amounts tend to be a little less.

What you end up seeing is when you put that into our overall mix, that has an impact on our total GoPayment average revenue per customer if you will.

But, we like having early-stage customers because it gives us an opportunity to grow the franchise over the long-term.

They tend to be a smaller business, processing fewer transactions, and typically a lower cash register ring per transaction.

So have you had success in converting these customers as traditional?

Or Brad do you think these are customers that just will have lower usage so they will remain GoPayment customers?

Well, we have seen a really good adoption of GoPayment for our existing QuickBooks customers.

And they want to have the ability to accept payments when they're out doing a landscaping job or painting someone's house.

In terms of the GoPayment customers that buy it stand-alone, we do have a small percentage and we've been focused on how we can grow that that are actually using not only GoPayment but eventually buying QuickBooks Online or another product.

We'll have to wait to see.

It always comes down to is the small business successful enough that they can move from that weekend merchant to someone who actually ends up hiring employees and becoming more substantial, and therefore have other problems that we can solve for them with products like QuickBooks and payroll.

I would say right now it comes down to our ability to give them the solution to the problem they have today, which is accepting a payment.

As they continue to grow and be successful, we want to be there for them to help them keep their accounting and do their payroll and the other services too.

But it's still pretty early days.

And then just one last question.

Brad I know you've answered this a number of times, I just want to make sure I try to understand it.

You said IRS returns down about 22%.

You guys are down 6%.

And I'm trying to understand maybe the difference.

Could the difference be a number accepted at IRS versus processed?

Or is it just simply that your customers are reacting to the situation better and filing?

I'll do my best to parse out again what we know and what we don't know.

What the IRS shared with us is the number of individual returns that have been received by the IRS, not processed but received, are down about 22% season to date, and that information is literally 24 to 36 hours old.

So I can't tell you what date that is through.

We'll leave it to the IRS to communicate that data when they're ready.

In terms of our data, what we do know is that we have seen our traffic up significantly.

In the early part of the tax filing season, that traffic didn't necessarily turn into processing because people were waiting until the IRS was ready or they were collecting more information.

As of January 30, that traffic has started to convert into processing and we've been up 29% for the first two weeks of February.

The IRS number is the number of individual returns received, and ours are actually the number of people who have come in started using the product all the way to the point of completion and have filed with the IRS.

It should be the same definition.

Yes.

Okay thank you very much.

I really appreciate it.

You're welcome.

Sorry for the confusion, this is a complicated tax season so we're trying to share as much is we have.

Jim MacDonald from First Analysis Securities.

One more question on the tax season, and that's not related to the forms delay but could be impacting.

What about other delays like the availability of W-2s for health inclusion and maybe later 1099s and things like that this year, do you think that's having impact?

Let me start with W-2s first, because we had heard about some questions in the marketplace.

And as you know, we're in the payroll business.

We pay 1 in 12 Americans.

And actually our W-2 processing this year was not only on time, we were about 10 to 14 days ahead of schedule.

So we have not seen any impact in terms of W-2s as it's related to things like Affordable Healthcare or anything else.

In terms of 1099s, there is a natural evolution that's been happening in the market for the last half-dozen years.

As people have 401K plans and investments they get their documents spread further and further into the season.

So where the W-2 has to come on a certain date, they're getting their 1099s later.

And I think that just continues to push the tax season closer and closer to April 15.

We are seeing that trend continue this year, but I don't think it 's happening at an inordinate rate faster than it was in the last couple years.

Okay.

And as a follow-up, you talked about no change in the online competitive situation.

How about in the retail competitive situation?

It looks like you're gaining share, but what do you think about the competitive situation and discounting this year versus previous years?

Each year our tax season and is competitive, and it comes down to who's got the best product, who's got the clearest marketing message, and who's got the best execution plan.

And we still have a lot of game left too be played, but I like where our team is standing right now halfway through the season.

In terms of retail, we've got the same players.

We have Intuit's TurboTax.

We have H&R Block, and we have Tax Act.

And so far, we've picked up a couple hundred basis points in retail.

So, in terms of pricing or promotion or discounting I don't think it's any more or less aggressive than it has been in the past.

I just think the execution is a little tighter this year.

Thanks a lot.

Yun Kim from Janney.

Brad, on live tax help, since the goal there is to attract new customers especially from tax stores, maybe it's perhaps a bit early but can you give us any sense on what percentage of those use live tax help are new to TurboTax, and how is that different from last year's level so far this year?

It is early, and it's hard for us to parse it out.

So far, we do look at the sources of new customers and we do like the fact that we're getting customers from tax stores and from some what we would consider to be a low-end pro.

And at the same time, that can shift even further as we move closer to April 15.

So at this point in time, we don't have any data we can share other than the early indications are positive and we think this program is working.

Okay.

And then Neil, for the margin in the financial management business down year-over-year a bit, probably more the last quarter.

I know that demand for us there has provided the headwind there, but was there any or is there any new investment that you're making into that business that's driving a further margin headwind there?

And then also, can you just remind us what's driving the year-over-year margin decline in the payment business over the last two quarters?

Is that simply driven by the GoPayment customers?

Thanks.

First of all, we're really happy with the margin expansion in small business.

Clearly Demandforce has had an impact on that, but if you strip that out of small business and of the total Company, the margin expansion looks really good.

In terms of the tax business, I think the revenue shift just has so much of an impact on the year-to-date results, you can't really -- I wouldn't read anything into that.

I wouldn't focus on that.

I would just remind you of our reiteration of full-year guidance to tell you what we're looking at there.

In the payments business, as Brad mentioned about our GoPayments customers and that the average revenue per customer there is not the same as with our traditional QuickBooks-attached customer.

But again, there are some things in that business where we're still trying some different marketing techniques and some different ways to onboard new customers.

And I think the impact you're seeing for the first six months is probably not indicative of the full-year.

Okay, great.

Thank you.

Kash Rangan from Bank of America.

Hello, thanks for squeezing me in.

This is [Jamon Shoney] in for Kash.

A couple of quick questions for you Brad.

Going back to the tax season information that you've been sharing, is there anything specific that you see from competition that's different that surprised you this season thus far with what you were expecting?

And secondly on the QuickBooks Online, it seems like there's sequential growth rate in the QuickBooks Online.

The number of viewers that you had quarter over quarter really picked up this quarter, about 31,000 units versus 17,000, 18,000 units we have seen in the past couple of quarters.

Any idea, any color on if this is driven more from international growth, or is there any change in the end markets here?

In terms of the tax competition, are there any surprises?

No, we have really good competitors out there.

I think everyone has got their A game and they're out in the marketplace competing effectively.

There really hasn't been any big surprise in terms of new product launches, marketing campaigns, or pricing strategies.

I think everyone is just out doing their best and executing and trying to navigate through the complexity of a late season.

In terms of QuickBooks Online, I really appreciate you calling that out.

I think the team has really done an excellent job.

The QuickBooks Online team has optimized its funnel so that they are doing a better job of improving the first use experience and turning those customers into active users.

The second thing we did is we removed the credit card required, so we actually addressed what was a stumbling block in terms of the first use experience.

The third thing they've done is they've introduced QuickBooks Online for the iPad, and that has gotten very early results.

And it certainly hasn't had enough time in the market to have a big impact on Q2, but we love what we're seeing in the last couple weeks.

And I think it will have an impact going forward.

And the last of the points that you called out which is QuickBooks Online the global edition.

We are seeing good customer attraction and active use outside the US, and I think all of those add up to a very promising outlook for QuickBooks Online.

As we move more to mobile devices, we improved the first use experience in the funnel, and we began to look at global.

And I think you'll continue to see that sort of growth as we look ahead.

Got it.

Thanks Brad.

Michael Millman from Millman Research.

I guess an incredulous belief about the IRS numbers.

So the 22% down, was this offhand or some official related as you've gotten updates through the year -- through the season and is this consistent?

And then, you would particularly want to know what the digital movement was, could you break out or if you have it, digital versus the e-file or a dealer prepared e-file?

Some other questions, in 2011, which is similar in that there was a lot of delays, your online was up about 6 %, this year you're down 7%.

And maybe you can talk about that a little bit why the difference if that means something?

And then in terms of competition, people like Tax Slayer and Tax Act have been super aggressive at the discount end, and I was wondering if you're seeing any share movement in their direction to cut strictly on price?

Thank you Michael.

We've got a couple of questions in there, so I'll try and take them one at a time.

I appreciate your skepticism around the IRS number.

I can only share with you what we know.

Our sources come from the fact that the IRS is doing its best to communicate with the industry so we all collectively know how we can help taxpayers through this period of confusion.

So it is a piece of information that came directly from the IRS, and has been shared with us as an industry.

In terms of the movement towards digital, I can't tell you right now.

The IRS has not broken down or produced any reports that says how many returns are coming in digitally versus any other method.

I don't have data from the IRS.

I do have data from the other sources like Comscore, Hitwise, Google that suggest that the digital category seems to be doing pretty well.

And we also have a pro business as you know, and we talked with the accountants who use our pro tax products, and they're telling us that they're seeing a delay in their tax -- they're people coming into them as well.

So, I think the digital category is holding its own, but I don't have any data from the IRS to corroborate that.

In terms of 2011 and the online being up 6% and then down 7% now, I would tell you that the hypothesis that we have is that the consumer has been so focused on what's happening in Washington that they behaved differently this time than they did two years ago.

We even got that from survey data as we headed into the season.

We asked them how many once they found out that there was going to be a delay, had planned to file later, and a surprising number of people actually planned to change their tax filing habits because of that.

So that's showing up in the data, and that's about the only way I can explain why the numbers may be different versus two years ago.

The last piece was competition, and you named a couple of competitors and the discount rates.

I would honestly tell you Michael, we don't see a big difference in the aggressiveness.

I'm sure they have certain promotions out there, but in terms of market share data, the data that I shared with you comes from the sources that I referenced, Comscore as well as some of the others.

And we like the traffic coming to our sites, and the data suggests that we're actually holding share.

And some data actually suggests we may be up about a half a point, and that feels good when you've got a 3X lead over the second closest competitor in terms of market share.

And so I can't tell you whether they're picking up from somebody else.

But I do know this, they're not taking from us.

Great, thank you very much.

Tom Ernst from Deutsche Bank.

This is actually Jovan Matthew on behalf of Tom.

Brad, you've mentioned that the incremental user base that you want to target is the 40 million user base coming from the CPAs and the tax stores, which do pretty much simple filings.

Based on the initial data that you have, do you have a sense that you've been able to make some inroads against your target attempt?

And then Neil is this is your second year of putting in live services, so how should we expect an impact on margins versus last year?

Should it flatten out versus last year, or are you investing more or less?

Thanks.

We are targeting the 40 million people who have a very simple return, at least from a tax perspective they don't always view it as simple.

But they're being charged an extra $100 to go a tax store, and their also willingness to use software has been indicated if they had someone who could answer question for them.

So we think that's a prime target.

It's still early days.

The early results suggest we are getting customers from these sources, but we'll have to wait and see how the full season plays out.

But so far, we like what we're seeing.

As far as the margin, I would just say that we saw some compression last season that was driven primarily by our debit card product and the way we managed that product.

That's why we made a pretty significant change in between the years in how we serviced that client that basically wants a debit card for their refund.

While we talked about the efficiency and effectiveness of our live tax advice last season, we've looked at the effectiveness both of marketing and of live tax assistance.

So, I think we can -- we planned for some profit improvement this year in the tax category.

But I would tell you that probably the biggest driver of that was our restructure of the debit card program with live tax assistance and marketing being a secondary source of improvement.

Let me add one perspective on the first part of your question on the simple tax filer.

Probably the best indication of our ability to penetrate the simple tax filers is looking at the SnapTax business, because it purely targets those with simpler returns.

And that's the business you'll recall Brad said it was up 3X versus a year ago.

So dramatic growth.

Also with what looks like based on reviews, the highest share position we know of, we outsell it anywhere from 30 to 50 times more based on the reviews, our rivals.

Lastly, going to the Apple App Store or Google Play and the reviews.

Just the enthusiasm from the users, the infectious joy from doing taxes is something I'm not sure I've seen before.

And I think those are some of the best leading indicators of our ability to continue to penetrate that 40 million that Brad described.

All right.

Thank you Scott.

Thanks Scott, Brad, and Neil for the answers.

Thanks.

David Togut from Evercore Partners.

Do have head-to-head win rates of GoPayment versus Square?

I'm sorry David, the first part of your question I lost.

I heard GoPayment and Square, what was the question?

Do you have the head-to-head win rates of GoPayment versus Square?

In other words, do you track GoPayment's success rate directly versus Square?

We don't have head-to-head win rates because we're dealing with a long tail of small business.

I can say it's not a zero-sum game.

That today just over half of small businesses accept a credit card, and so through the efforts of that competitor, eBay, ourselves, and lots of other people in this space, there are lots of opportunities for people to begin to change their behavior as a small business and start to accept credit cards and electronic payments.

So right now, everyone is benefiting from that and all of us are growing very strong results.

It's also hard for me to tell you because Square is a private company so they don't have public results.

I can't tell you what their results add up to.

I do know that they're out there and doing a nice job of growing the category, and we're certainly benefiting from that as we grew our payments business 18% again this quarter.

Got it.

And then what have you done to make TurboTax simpler to use this year?

The team has done a lot of work to understand how they can use the data that we have inside the product then how to simplify and customize the experience so it's very personal to you.

We've done things this year to help military filers have a product that's unique to them that has very special circumstances if you've been deployed overseas.

It's a much more customized experience for someone serving in the military.

We've made changes to our mobile versions of our product for the digital natives, so now over 80% of people with simple returns can file and complete on a smart phone.

We are also looking at how to continue to pursue further, so if you're a teacher and you have special things like school supplies we can prompt you on the deductions that other teachers have taken, so you don't miss any of the money that's rightfully yours.

And those are the things that the team continues to make to make the product simpler, but more importantly more personalized to the individual tax filer.

I see.

Thank you very much.

James Owen from Ascend.

In general, could you comment on the Affordable Care Act.

Do you expect there to be a change in pricing both in your do-it-yourself space as well as in-store?

And are you concerned that the additional complexity of ACA may push some of your clients to move to an in-store extra $100 environment just because there are so many new questions about that additional form?

I'll go back to the response earlier.

It's still very early days on the Affordable Care Act.

We're out there today educating tax filers through our products on the kinds of decisions they may want to start making, so that when it rolls around in 2014 they will be better prepared.

We have a team of experts in our healthcare business whose whole job is to make the healthcare system simple for an average consumer to understand.

Working very closely with our tax team, so that we come out with the right solutions next year.

And our whole job is to make complex things simple.

That's the business we've been in for 30 years.

And so, there's no question there's complexity.

But as we've been able to take the tax code and turn it into a very simple process, which now has more people filing with TurboTax than any other alternative method we plan to be able to help customers make these decisions around affordable care as it impacts their taxes as well.

So we see it as an opportunity, and we actually think that we'll be fully prepared to address that opportunity and help the consumers next year when they need to have the answers.

All right.

Thank you very much.

Gentlemen, I'm showing no further questions.

Would you like to close with any additional remarks?

Yes, Sayed, thank you.

I want to thank everybody.

We realize this is a complicated quarter.

There's a lot of moving parts.

We're sharing data with you in real time, and I appreciate the thoughtful questions to help us clarify some of what we're seeing and what we're trying to communicate.

I will tell you we like our game plan.

We know that the start to the race was delayed, but the finish line has not moved.

It 's still April 15.

So, we're looking forward to speaking to you again once the some of the dust has settled and the results are up on the scoreboard.

And until then, I hope you all have a good weekend and we'll talk to you next time.

Ladies and gentlemen, thank you for participating.

This concludes today's call.